Monday, September 10, 2012

How Should Oregon Regulate Alcohol?

The Oregonian kicked off an excellent three-part series yesterday on the thicket of regulations that govern the distribution, taxation, and sale of liquor in Oregon. Every state has its own strange thicket of regulations, all built on certain goals and assumptions, and until very recently, Oregon's seemed to be untouchable. But then a funny thing happened: the people of Washington state decided to modernize their laws, bringing them more in line with California, and Oregon is now the West Coast's odd man of booze.

The whole series is going to be worth a read, but today I want to tackle some of the issues raised (and not raised) in part one. Political writer Harry Esteve penned the series, and he used three main informants about how the system works--A to Z Winery in Dundee, Galaxy wine distributor, and the Oregon Liquor Control Commission. (Esteve has written about the OLCC before, and it's worth noting that A to Z has long been an OLCC foe.) Esteve does a fantastic job of illuminating why a bottle of wine costs as much as it does. It's not because the winery (or brewery) is getting rich. It's because so many people get a piece of the action along the way:

Each time it's handled, the price of a bottle goes up. The storage
warehouse gets its cut. The state gets its cut. Distributors tack on
anywhere from 15 percent to as much as 40 percent or more. And retailers
tack on their margin. On a recent delivery trip, Galaxy applied its markup to a bottle of A to
Z pinot gris and then sold it to Safeway for $8.99. Safeway put it on
sale for $11.99, a 33 percent markup.

This is a theme he address more fully in today's column (which I'll comment on tomorrow). The paper also published a great infographicthat breaks down the cost of a bottle of wine by percentage:

2% - Taxes

4% - Bottles, corks, and labels

5% - Winery profit

7% - Grapes

9% - Wine production

18% - Sales, marketing, administration, shipping

25% - Distributor markup

30% - Retailer markup

All of this is fantastic info, and info I'm pretty sure is completely lost on the average consumer when she sees a $30 bottle of Oregon pinot noir made just down the road. Where Esteve falls down a bit on the job, though, is in buying the OLCC's gilded rationale for its own existence:

Yet it's also one of a dwindling number of states where the government
exerts near dictatorial control over an alcohol system designed 80 years
ago to prevent the likes of Al Capone from horning in on the trade....

"What's interesting is the OLCC has done such a good job of preventing
the abuses that came up during Prohibition," [Cassandra SkinnerLopata, OLCC chair] says. Other
countries, and even some other states, continue to see health problems
from "adulterated" liquor, including blindness and paralysis.
Counterfeit brand-name liquor continues to be a problem, she says.

Well, yes, in 1933, Oregon was worried about bootlegging. But that's not what it was principally worried about. Here's the full rationale from the 1934 Liquor Control Act that established our system of liquor laws:

(1) The Liquor Control Act shall be liberally construed so as:

(a) To prevent the recurrence of abuses associated with saloons or resorts for the consumption of alcoholic beverages.

(b)
To eliminate the evils of unlicensed and unlawful manufacture, selling
and disposing of such beverages and to promote temperance in the use and
consumption of alcoholic beverages.

(c) To protect the safety, welfare, health, peace and morals of the people of the state.

(2)
Consistent with subsection (1) of this section, it is the policy of this
state to encourage the development of all Oregon industry.

I have bolded the relevant portions to illustrate the point: the state of Oregon may have been compelled by the 19th amendment to allow liquor sales, but they damn sure weren't going to make it easy. The OLCC may now see their role as one entirely about law enforcement, but the very clear foundation of the statute is to gum up the production and sale of booze. Oregon passed its own version of Prohibition in 1916--years before the country did it--and we were still in a mood for restricting alcohol.

This is relevant history, because the OLCC defends its existence on the dubious notion that they're preventing criminality. But as citizens, we have a right to point out that that's not really why the laws were drafted in the first place. They were drafted to stifle alcohol sales, and for 78 years they've been doing a bang-up job.

I don't take stifling sales as being in that quoted passage from the law. It says to prevent abuse, promote temperance and protect peace and morals.

The more I read about North American pre-prohibition drinking, the more I realize we live in a time of temperance and are quite happy doing so culturally. People under a certain age do not drink, people do not drink on the job and do not drink at breakfast during the work week. It is a peaceable compromise most have made with booze.

So, isn't the argument not that the LC is wrong so much that it fairs to realize the war has been won?

Oregon has a lengthy love-hate relationship with alcohol. We had territorial prohibition 1844-1845...and flirted with it many more times in subsequent years. Indeed, the temperance movement was strong here from the late 19th century though national Prohibition. Some of those attitudes certainly lived on beyond 1933.

I think you are absolutely correct about the reasons for post-Prohibition laws: the state wanted to stifle alcohol sales. And they largely succeeded. They're running scared today due to what recently happened in Washington. We will likely see some further relaxation of liquor laws in Oregon, and I think that's a good thing. But we surely don't need what they have in Washington, which has largely been a disaster for consumers and not quite what people there thought they were voting for.

Alan, "prevent abuse, promote temperance and protect peace and morals" is straight boilerplate from the decades of fighting for the "temperance" that led to prohibition. Laws are political documents, and the preambles give the spin to signal the following deliverable to a particular constituent. It's impossible to read those words in the context of alcohol without hearing them come from the lips of Carrie Nation.

I am sadly ignorant of Canada's temperance movement and don't know if you share a history of rhetoric, but this is pretty clear stuff in the American context.

I guess I'd pivot and say: do we still share the goals of that 1934 law? If we were to rewrite it to reflect our current assumptions and goals, what would they be? I am very much in favor of alcohol regulation and taxation. The question is: are our current laws accomplishing the goals we want them to, or are we suffering under the effects of laws designed to accomplish very different goals?

@Anonymous: I realize that fake alcohol is a real-world issue, and I'm not suggesting that alcohol should be completely deregulated. I do believe that the OLCC's approach to regulation is ham-handed and out-moded. Many other states -- such as Oregon's neighbors Washington and California -- have opted for a more moderate approach and to the best of my knowledge they are not having serious problems with counterfeit liquor.

Carrie Nation was not a proponent of temperance but of abstinence. My point is that "prevent abuse, promote temperance and protect peace and morals" is pretty much what you (and much of western culture) want from alcohol and, yes, that means temperance won (and much of western culture is the better for it. Surely you are not advocating for abuse, intemperance, peacelessness and immorality. Of course you are not any more than you would support other scourges of 1800s life. Because you live in a community that values moderation, public health, broad distribution of wealth and happiness and rejects the libertine and license.

Some of the problems with the system might also be virtues, however. Since the system doesn't permit quantity discounts, scale is less of a factor than it might be in wider open markets. It's possible that Oregon's great diversity among small wineries and breweries and even distilleries is in part because the barriers to entry aren't so high as they might be in markets where super-sized players dominate. As Washington is finding out, unintended consequences may swamp the supposed benefits to consumers. Oregonians shouldn't rule out change, but they should proceed very cautiously. Sure the rhetoric of temperance/prohibition is outdated, but for consumers claims that the system is broken may be exaggerated.

Capital Taps said, "Since the system doesn't permit quantity discounts, scale is less of a factor than it might be in wider open markets."

Indeed, and it's that lack of quantity discounts that (IMO) is largely responsible for the growth of so many independent bottle shops. There's no way they could compete with Freddies and New Seasons if the chains were able to receive a quantity discount along with all the other economies of scale they enjoy.